The Rise Of The Subscription Economy

Not too long ago, luxury goods were only for the rich. Car ownership was essentially the only feasible way to access a car anytime. People were limited to watching only the movies they owned on DVD, or those that were -- gasp! -- playing live on television, replete with commercials.

But things have changed drastically.

Consumers are today less willing to pay large amounts for products or services upfront. Instead, we now prefer to use a car or bike for a day, rather than commit to the full cost of owning one forever, or at least for its useful life. And consumers can now access goods from luxury items like purses and gowns, to commodities like razors, to meal delivery kits -- all for low monthly fees.

As the subscription business model infiltrated industry after industry -- from ecommerce to media to transportation to retail and more -- the benefits to businesses and consumers alike grew more and more obvious. This is how we’ve evolved into the subscription economy, and adoption of the subscription business model is only going to increase from here.

With a subscription relationship, businesses gained an ongoing interaction with customers -- offering the opportunities to upsell new services, new products, new apps at every (often) monthly payment and to build brand loyalty and dig in deeper.

Credit: Baloon111 | Dreamstime.com

Customers gained access to luxury goods they didn’t have to pay for up-front, constant upgrades on products and better customer experience as businesses jockeyed for more of the up to 7% in monthly income multiple generations of people now spend on subscriptions.

Meanwhile, major shifts were happening on the BtoB front, too, as software-as-a-service became the preferred way to purchase productivity and communication tools, ERP software and most everything else.

As the buying patterns of consumers and businesses shifted, more companies feared losing out on the subscription economy pie as new market entrants born of the subscription model like Stan and Amazon rose in popularity. But the subscription economy also lured legacy companies to shift their models.

Even as some analysts still obsess about weakening iPhone sales, there’s far more to Apple’s growth story, thanks to subscriptions. iPhone holders are slowing the pace at which they upgrade to about three years from two, according to Telsyte’s managing director Foad Fadaghi, but the company is adding new subscription services like Texture and Shazam at a rapid clip. And Apple is making the most of the financial opportunities, earning billions in subscription revenue last year. Notably, its Apple music service boasts some 38 million subscribers and that number is growing fast. Apple must know it can make more monthly revenue off of its iPhone customers so why should Apple care if people hold onto phones a little longer before upgrading?

Australian companies have certainly taken note of the Subscription Economy’s rise. More than two-thirds of Australian businesses were planning to adopt a subscription model by 2018-2019, according to the ANZ Subscription Shift, a 2016 survey by Ovum for Zuora. And even unlikely industries are getting into the mix, from heavy equipment manufacturers like Caterpillar to social media giants like Facebook and more.

With both businesses and consumers demanding to purchase products and services this way, the only question now is how quickly every industry adapts.

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